CFC Cost Accounting & Management 3

Question 1

What does the term 'throughput contribution' mean in the Theory of Constraints?

Accepted Answer

Sales revenue minus direct material costs only

Answer

In the Theory of Constraints, throughput contribution equals sales revenue minus direct material costs — only truly variable costs are deducted.

Question 2

A relevant cost in a special order decision is:

Accepted Answer

Variable manufacturing cost per unit

Answer

Variable manufacturing costs change with each additional unit produced and are therefore relevant to a special order decision.

Question 3

Equivalent units of production are used in process costing primarily to:

Accepted Answer

Express partially complete units in terms of fully complete units

Answer

Equivalent units convert work-in-process inventory into a measure of fully completed units for cost-per-unit calculations.

Question 4

If a company has a margin of safety of 25%, a 10% decline in sales would result in profit declining by approximately:

Accepted Answer

40%

Answer

Operating leverage = 1 / margin of safety ratio = 1 / 0.25 = 4; profit change = 10% × 4 = 40%.

Question 5

Which overhead variance measures the difference between budgeted fixed overhead and the fixed overhead absorbed by production?

Accepted Answer

Fixed overhead volume variance

Answer

The fixed overhead volume variance measures whether actual output absorbed more or less fixed overhead than the original budget.

(CFC) Certified Financial Controller Practice Test